I am hoping you might be able to offer me some thoughts on why I shouldn't buy this particular camera. Odd approach to take but I have already made my descision that this would be the best camera for my needs/wants and I want to make sure I am not leaving out any other considerations due to limited knowledge of photography/cameras.

Background:
This would be my first DSLR. I intend to use this camera for the usual crap like vacations/family/ hobby. I do enjoy taking photos but right now but I don't see it becoming a "serious" hobby. I would like to keep the price point around $500 or under and I dislike the idea of spending $$$$'s more down the road for more lenses. I realize at this price I am limiting myself to entry level camera's and I am okay with that for now.

What I find useful to do is to go to Amazon or where ever (depending on the product) and look at the negative (or less than positive) reviews, then factor them against the positive reviews and then fold that into my decision... Just a thought.

Beyond that I have nothing to add since I do not use an Olympus camera. That said, all the major camera makers have very good cameras that take great pictures, especially for general photography. Most of the negatives are focused on the cutting edge of some capability, that may or may not matter to you.

Most of the disadvantages would arise from the choice of using the smaller 4/3 sensor. The smaller the sensor, the less capable it will be at high ISOs and the less exposure ladditude you have (Dynamic Range). It won't be a huge difference with the other entry level cameras, but it exists, none the less.

Many of Oly's advantages also arise from its choice of the small sensor. Its easier to design lenses that perform well when you don't need to concern yourself with covering a large sensor. Oly lenses are highly reguarded across the board. The two with your kit are really quite good. Another benefit is size, and I doubt you will find another kit that will cover the same range (angle of view) at the cost, weight, and physical size.

The E520 is feature rich for the buck. Its stabilized and is a very capable camera. It wouldn't be a bad choice, but all the rest make good cameras also.

I shoot Oly and I've never looked back. It suits me to a tee. A word of warning is you may THINK its enough now, but later you may want an external flash (recommended) and additional lenses (it can become a disease). You could get hooked like the rest of us:-)

Its also something related to the smaller sensor, and that's the size of the viewfinder. It is smaller than its peers. If you do nothing but rely on autofocus, it may not be an issue. If you want to do some manual focus, it can be a challenge.

I had the E510 2-lens kit and loved it. Images were sharp right out of the camera. The only negative was its limited DR. I had a hard time controlling the highlights. There were situations where I had to cut Ev by -1.0 or even -1.3 in order to preserve the highlights and then end up with a very dark image. That would be OK if noise was more under control as I recovered the shadows. So, when the E520 came out, Oly claimed that DR was better than the E510 so I went ahead and replaced the E510 with the E520. Indeed DR was better, much better in fact. However, images were a lot softer, the camera struggled focusing in low light (and many times it locked the focus innacuratedly) and in the end, I sold it in favor of the Sony A200. Now I'm a happy camper.

take time to read the manual, get to know as much about the camera as you reasonably can, and visit discussion forums specific to the brand of camera you buy to ask questions and learn.
The reason I mention this is that, altogether to often, a new buyer of a dslr just assumes that they can buy the camera, turn it to auto and that's all there is to it. The results often times are much less than what was expected. That's not to say you can't do that, yes, you can. But, there will be situations, i.e. taking pictures of your kids in action scenes, or gymnastics, etc. where you'll want to use specific settings to get the shot you desire.

Once you get the hang of the ins and outs of your new camera, you'll be happy with the results. Sort of like a good workman knowing how to use his/her own tools.

BTW, the E-520 with the 2 kit lenses, because of it's slightly smaller sensor, will give you an effective range of 28mm up to 300mm in 35mm equiv. That's one heck of a focal range.

The E520 2-lens kit is being sold on Amazon (not BY Amazon) for $549, which is a great deal. The camera is packed with features and since your budget is $500, I think for an extra $50 you should get the zoom lens as well. If you can spare another $150, I'd seriously consider the E620, which from what I've read, is a much superior camera. Another good option is the Sony (A200/A230 or A300/A330). It has a much better DR and the A300/A330 have one of the best implementations of a live view system. The Oly LV is close to being unusable, IMO. The A230/330 also come with a re-designed kit lens, apparently superior to the old kit lens. Than there is the new Canon T1i, which is receiving a lot of good reviews but that's definitely outside your price range.